CFA Practice Question

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CFA Practice Question

An investor purchases a 3-month put option on a stock with an exercise price of $35. The risk-free rate is 4.50%. At expiration, the stock price is $33.50. The option's payoff is closest to ______.

A. $0
B. $1.48
C. $1.50
Correct Answer: C

The put option is worth the greater of $0 or (exercise price - spot price at expiration). Since the exercise price is greater than the spot price at expiration, the put is worth (35 - 33.50) = $1.50.

User Contributed Comments 3

User Comment
Inaganti6 Why was the risk free rate given.....
Kiniry ^To throw you off.
khalifa92 interest rates aren't applied to put options cause u dont have the money but in the case of call options u have the money and convenience to invest them until exercising.
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